Monday, May 17, 2010

The Case for DOW 4500 WATCH IT Unfold! - Week 3

What about China?  I guess everyone is supersaturated with the noise and chatter regarding Europe, however no one i.e. media is concerned now with China.  As the old saying goes it is always the quiet ones that bite you in de butt.  Chanos China Bear, must be in his element right now.  Rodgers - China Bull, is likely sweating profusely tightening his grip on what is certain to be a whiteknuckle ride.

You can't help but notice on just about every stock chart I have looked at across sectors and industries the amount of insider selling that is taking place.  This has to be an enormous red flag to anyone thinking about going long.  If the folks are selling now shouldn't we all be.  We are working on a false premise, that the second half of this year was going to be as robust as the last couple of quarters in terms of GDP growth and job creation.  However, there has been no real basis for this and with the economic slowdown in Europe and China, we are likely to stall as well.  There used to be a saying that if the US were to catch a cold the world would catch pneumonia, well what if the rest of the world catches SARS, will we get it too?  Citibank should be the poster child for the current market aptly so.  I have heard of my friends and pundits backing the truck up and loading up with as much "C" as their axle will hold.   Right about now they have to be sweating, really sweating.  Somehow the financials have been avoiding the creaping krud the rest of the market has, but if you look at their insider trading it is very heavy on selling.  Which means you have to wonder if they are basically getting money for free to trade, buying treasuries with it -- and not lending -- that has got to be a great model, they can make money all day long, so why are the insiders selling.  Curiously enough GS mysteriously stopped insider selling since the begginning of May.  Although from the time they received the Wells Notice 18 months ago there was a steady flow of insider selling.  Once again Goldman was ahead of the pack.  Don't get sucked into the market yet, it still has a ways to go down, it is clearly struggling to move up and will continue to do so.  Geo-politically, more countries are unraveling in slo-motion but I would expect this to start to accelerate.   

Nassim, is sadly most likely correct.  Financial engineering is likely not going to survive this mess.  It's not a knock against math in the markets, but I suspect we need rocket scientists building the mathmatical models.  Accustomed to dealing with quantifying the unknown variables and risks.  Clearly we had the guys that couldn't make it in the rocket program building our model.

I also applaud JPM and GS for their respective 100 day earning streak.  I just wonder when the 100 day losing streak will occur? 


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